Microstructure of Kerala state open market borrowings: An empirical analysis

The growing fiscal obligations of the Kerala state in India are increasingly met from debt liabilities. COVID-19 is adding to spending needs as the state seeks to mitigate the health and economic effects of the crisis. The resulting increase in market borrowings is likely to increase the tension between meeting important development goals and containing debt vulnerabilities. To secure the government’s funding at all times at a low cost over the medium- and long-term while avoiding excessive risk, an assessment of the market borrowing programme is important. This study examines the market borrowing programme of Kerala with a view to better understand the dynamics of cost and risk associated with Kerala state government securities. An empirical analysis was conducted to assess the determinants of the yield spreads of Kerala state government securities relative to the yields of central government securities of the corresponding maturity.